Conn. Hedge Fund Hit With Fraud Lawsuits

Oct 26 2010 | 3:30am ET

Federal and state regulators came down hard on a Connecticut hedge fund yesterday, accusing it of overvaluing its portfolio to overcharge investors by tens of millions of dollars.

Southridge Capital Management and CEO Stephen Hicks cooked up a bogus value for their funds' largest holding, Fonix Corp., based almost entirely on the speech recognition company's 2004 acquisition of two companies controlled by Hicks, the Securities and Exchange Commission and Connecticut Banking Commissioner Howard Pitkin alleged.

Southridge and Hicks also lied to investors about the firm's strategy, according to the suit, allegedly claiming to have more than three-quarters of the $78.9 million they raised from 2004 through 2007 in liquid assets or cash. But when most of the hedge funds' investors filed redemption requests, they allegedly found them ignored.

Some of the unfilled redemptions date back to 2001, according to Connecticut, which is seeking a 10-year ban against Hicks. The firm managed as much as $125 million between 2004 and 2007, but as of early last year had only $70 million.

All told, according to the Connecticut lawsuit, Hicks and Southridge collected $26 million in fraudulent fees over the 2004 to 2007 period.

"This investment firm told lucrative lies," Connecticut Attorney General Richard Blumenthal said. "This kind of financial fraud harms investors, but also the entire economy."


In Depth

Q&A: Executive Recruiter Talks Hedge Fund Closures, Hiring Trends

Dec 19 2014 | 6:58am ET

This year, hedge funds have been closing at a rate not seen since the financial...

Lifestyle

Cooper-Hohn Won't Contest Divorce Settlement

Dec 18 2014 | 9:51am ET

The ex-wife of hedge fund billionaire Christopher Hohn will not contest a divorce...

Guest Contributor

Alternative Investment Funds Face A Communications Imperative

Dec 19 2014 | 6:10am ET

A handful of the top alternative investment firms on both sides of the Atlantic...

 

Sponsored Content

Editor's Note

    Guidelines for Guest Articles

    Oct 22 2014 | 9:46am ET

    We are always looking for guest articles from hedge fund managers and buy-side firms.

    If you are interested in submitting a contributed piece for possible publication on FINalternatives, please take a look at the specs. Read more…

 

Futures Magazine

December 2014 Cover

Futures 2014 person of the year

Jeff Sprecher was simply looking for a platform to trade energies when launching ICE 14 years ago but it has grown to reach the pinnacle of both the listed futures and equities world.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.